Geithner goes out in a blaze of ordinary

Timothy Geithner
appeared at the House financial services committee last week for the final time as Treasury Secretary. He wanted to leave the job last year but President
Barack Obama
persuaded him to stay.

As the only remaining member of Obama’s original team of senior economic advisers, Geithner offered the President continuity. He’d made a crucial contribution to the righting of the US financial system, both in his present role and in his pre-Obama role as president of the US Federal Reserve of New York.

There were plenty of brickbats for bailing out Wall Street. Yet few Americans would trade their post-crisis experience for that of the Europeans, or Japan in the 1990s.

Three-and-a-half years on, Geithner hasn’t earned a victory lap. The recovery is the weakest since the Great Depression. Growth sputtered in the June quarter, just as in the past two years, to a 1.5 per cent rate.

Today he’ll be in Europe humbly badgering the Germans and the European Central Bank to move a bit quicker.

The years between have been arduous, at times bitter, and barely satisfying. Obama’s economic team was dealt a dud hand. But they undermined their ability to make the most of it, on behalf of the President, through infighting, lack of consensus and constant “relitigation" of decisions.

“The economic team’s failure to resolve their differences and Obama’s failure to decide a course of action would haunt the presidency," wrote Jodi Kantor in her book The Obamas of a late 2009 meeting that broke up with Obama storming from the room.

“The administration would be hamstrung by the stimulus versus tax cuts debate . . . for many months to come."

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Geithner shouldn’t bear all the blame. The overbearing chairman of the Council of Economic Advisers, Larry Summers, and Obama himself share some of it.

But Geithner shouldn’t get off scot-free, either. A treasury secretary is powerful. The worst financial crisis since the 1930s made it harder to find solutions but it also increased the urgency.

Conventional responses – stimulus spending, lowering the Fed funds rate – didn’t bring about a durable recovery. The Fed moved swiftly to unconventional policies, such as bond buying. The administration found it harder to do so in the first two years, when breaking the mould, say, in housing or tax reform, might have helped.

Geithner opposed radical housing policies and didn’t bring forth a plan for urgently-needed tax reform. He did embrace the President’s eventual solution of more stimulus and dubious tax breaks for manufacturing. But by this time the Republicans controlled the House and little could be done.

During last week’s hearings, Geithner was assailed for failing to take charge of the Libor-fixing scandal more decisively when he was alerted in early 2008.

At the time, an employee of Barclays Bank – the bank has just been fined $US453 million – told a New York Fed staffer about the practice by Barclays and other banks. Geithner said he told other US regulators and sent a memo of reform ideas to Bank of England governor
Mervyn King
. King told a British parliamentary inquiry that Geithner hadn’t alerted him to rate-rigging. The reforms weren’t implemented, and there’s no evidence of Geithner following up.

Democrat Carolyn Maloney asked Geithner if there wasn’t anything he could have done, as New York Fed president or Treasury Secretary. “I’ve thought a lot about this," he replied, “[and] I believe we did the necessary, appropriate thing very early in the process."

In Geithner’s favour, things got a hell of a lot more stressful after that. Still, in using Libor as a benchmark for subsequent rescue bids such as the $US182 billion bailout of American International Group, he was often reminded of its suspect processes. Odd that he didn’t pick up the phone and ask King how the Libor reforms were going.

Geithner, who crossed his legs and played with his watch and wedding ring throughout the hearing, was unconvincing when asked about Citigroup creator Sandy Weill’s Damascene conversion to breaking up giant banks.

He said the Dodd-Frank financial reforms made life tougher for them, requiring them to hold much more capital, limiting their relative size and the state’s ability to rescue them.

He thought Dodd Frank should be given time to work. But he did not rule out the break-up alternative – which might reduce the need for Dodd-Frank’s micro-regulation – as emphatically as he had.

Like Obama, Geithner lacked private sector experience. Whatever he’s said in private, publicly he hasn’t done anything to temper Obama’s anti-business rhetoric and instincts. At a rally in Virginia Obama mocked successful business folk for thinking they worked especially hard, or were especially smart.

Geithner told CBS’s Charlie Rose last Monday he didn’t think there was “any merit" to the notion that the burden of complying with Dodd Frank’s 2300 pages was inhibiting lending. One of the act’s creations, the Consumer Financial Protection Bureau, has promulgated a 1099-page guide to “streamlining" mortgages.

To restore confidence and demand, the next treasury secretary will need to be more familiar with the workings of the private economy and more willing to think outside the box than Geithner.